UK Law Reform

The Law Commission and the Scottish Law Commission are conducting a joint review of insurance contract law. The third consultation on the insured’s duty of disclosure and law of warranties was published on 26 June 2012.

Under current law, a business policyholder has a duty to disclose every material fact known about the risk to be insured. Failure to do so may lead the insurer to refuse claims.  In some cases, not every material fact is known.  Information may not be deliberately withheld.  The proposal is that insurers ask the relevant questions to help ensure that every material fact is disclosed. Fairer consequences of breaches where the policyholder was not deliberately misleading are also being proposed.

An insurance warranty is an important term.  Unless the insured exactly complies with the conditions of a policy, the insurer may refuse claims.  It makes no difference if the breach is trivial, not material to the risk or if the policyholder remedies the breach prior to the loss incurred.

For example if a policy requires stock to be stored 6 inches off the floor to minimise flood damage and the insured does not comply, the insurer may not pay a claim following a burglary.

Proposals include that the insurer’s liability is suspended only for the duration of the breach and were applicable be relevant to the particular risk only. This would be subject to freedom of contract for business insurance.

Get in touch, talk through your insurance needs, and make sure you and your business are covered by the right policies.

7 Reasons Why Insurance Companies Don’t Pay Claims

I hope that you have never been in the position to have an insurance claim refused.  If you have, it was probably for one of the following reasons:

1)          The claim was outside the scope of the policy.

                Your policy will only cover the risk specified.  It is important to consider all your risks carefully.  Those you cannot manage or eliminate, you need to insure.

2)          You failed to comply with the terms of the policy.

                There will be certain conditions you will have to meet in order for an insurance company to underwrite your risk.  No company is going to insure a building that has open fires burning in the centre of a warehouse full of flammable stock.  An extreme example I know but it is important to know that your policy is not being invalidated by something you are doing now.

3)          Your policy does not include consequential loss.

                Make sure your policy covers all the risk of any incident.  Particularly consider your ability to continue trading after a major incident.  Your buildings and contents may be insured but how will you remain in business if you have no means of doing business anymore?

4)          You gave false statements when you applied for insurance.

                Your insurance company will only insure what is real.  Lie and the policy will be void.

5)          You failed to pay your premium on time.

                Sounds obvious but you are not insured unless you pay the insurance premium.  Yes, you may feel being a few days late does not matter but if you have not paid your premium you are simply not insured.

6)          You take too long to report the claim.

                Make the claim as soon as possible. 

7)          You failed to disclose all relevant facts.

                Over 11 per cent of corporate insurance buyers have had a claim challenged on non-disclosure grounds in the last two years. Insurance policies are one of only a few contracts in which uberrima fides “utmost good faith” applies.  It is important you inform your insurance broker of all relevant information.

I’ll help with any claims, ensure the paperwork is correct and with the insurance company in good time.

The Bartoline Extension

Incidents happen and thankfully most of these incidents don’t lead to anyone being seriously injured.  The environmental damage can, however, be significant.  Sometimes you need to think about the wider implications of your business’s risks.  This is an example of why…….

Bartoline manufactures a number of items for the home improvement market including solvents and wood care products.  A fire at the company’s premises on 23rd May 2003 lead to significant pollution as chemicals were washed into two local watercourses.

The Environment Agency used its statutory powers under the Water Resources Act 1991 to carry out emergency work to minimise environmental damage and to remove and dispose of contamination.  The Agency then sought to recover costs from Bartoline.

The total costs of the clean up operation, including the requirements the Agency made of Bartoline themselves, amounted to over three quarter of a million pounds.

Bartoline made a claim for these expenses under its public liability policy. Royal and Sun Alliance (RSA), Bartoline’s insurers, refused indemnity, stating that the expenses incurred did not fall within the scope of the policy.

Bartoline took RSA to court in 2006, alleging breach of contract, seeking clarification of the legal meaning of the term "damages" in an insurance context. The judge, however, found in favour of RSA.  The judgement was, in essence, that the liability for damages is based on an actionable wrong. Bartoline’s liability to the Environment Agency was statutory and the money owned to the Agency was a debt.

As a result of this ruling, liability insurers may now provide a “Bartoline extension”, covering the insured for limited costs of clean up required by environmental authorities.

Our Hazardous Haulage Scheme includes a “Bartoline extension”.  If you are concerned about and want to insure against any risk your business may be exposed to in relation to potential environmental damage, please give me a call.

6 Reasons to Use an Insurance Broker

Insurance brokers are experts in the field of insurance.  So as you might expect there are some really good reasons to use a broker.  Here are just 6:

1)          Brokers know what they are looking for. You probably only research the insurance market around your renewal date.  You can save a lot of time by asking a broker to do the searching for you.

2)          Brokers aren’t tied to one or two insurance companies.  So a broker is free to review the whole market on your behalf.

3)          Brokers can match your specific requirements to the myriad of policies available.  Getting the right policy that covers your exact needs could save you thousands of pounds.  It’s too late when the claim goes in to find out that you weren’t actually covered in the first place.  You may think all policies are standard but they are not.  Many businesses need tailored insurance policies depending on actual circumstances.

4)          Brokers are likely to get better terms for their clients.  This isn’t just because of economy of scales.  Brokers do a good deal of business with insurance companies.  They will get a good price.  It isn’t just volume of business that counts, it’s the understanding of the industry too.  Brokers know the insurance companies and brokers know you.  Where you may face reluctance from insurance companies, brokers are able to remove that element of uncertainty and facilitate cover.

5)          Brokers’ business is based on reputation.  They won’t recommend something that doesn’t fit.  It’s important to them that they ensure the client understands the risks of their business and transfers the risk (as necessary) to an insurance company.  What develops is a close business relationship based on trust.  That thorough understanding enables you to be covered now and as your business changes.

6)          Brokers can help you with your claim.  Should the worst happen you can rely on your broker to help with the paperwork and the process and enable a speedy payment.

Finally it’s worth noting that brokers have Professional Indemnity cover which gives you the added protection should he get it wrong.  If you'd like any help with your insurance please get in touch.

Directors’ and Officers’ Insurance

Directors’ and Officers’ Insurance D&OI, covers company directors, officers and senior managers against claims arising from the decisions and actions taken as they manage a business. Any director or company officer will have ultimate responsibility for the business and its employees.

Directors of a “limited liability” company are not necessarily covered for legal actions.  Directors' personal liabilities are unlimited and in the course of carrying out everyday duties for a company, directors are exposing themselves personally to lawsuits, investigations and criminal prosecutions. Directors are personally liable to defend any claims and their personal assets are potentially at risk.

Directors have a number of duties including the common law duty to act in the same manner as “the care of an ordinary man would take in the same circumstance on his own behalf”.  The law expects a senior manager to be experienced, reliable and honest.  Directors also have a fiduciary duty to act in good faith and in the best interest of the company.  There are also statutory legal duties outlined in many laws including Companies Act 1985, Insolvency Act 1986, The Bribery Act 2010, Environmental Protection Act 1990 and the Health and Safety at Work Act 1974.

D&OI may cover you in many cases including financial misconduct, health and safety issues, employment liability and criminal activity and may pay legal costs and expenses and any civil damages awarded. Shareholders, employees, creditors, regulators, suppliers and customers may all take action against you.

 
If you’d like to know more about D&OI, need to renew or revise your current policy, please get in touch.

Corporate Manslaughter

The Corporate Manslaughter & Homicide Act 2007 came into force on 6 April 2008.  This Act was introduced to make it easier to prosecute business organisations for manslaughter.  Previously to this legalisation organisations could only be found guilty of corporate manslaughter if, under common law, the “controlling mind” could be identified.  This meant the offence had to be attributable to a senior individual in the company.  Under “common law” a senior individual could be prosecuted (and still can be) for the offence of gross negligence manslaughter.

The first case was in February 2011 when Cotswold Geotechnical was found guilty of the corporate manslaughter of Alexander Wright in September 2008.  Mr Wright died following the collapse of a 3.8 metre deep, unsupported, trial pit.  He died of traumatic asphyxia as the weight of soil crushed his body.  He was 27 years old. Cotswold Geotechnical was fined £385,000.

In May 2012, following Northern Ireland’s first corporate manslaughter conviction, JMW Farms Ltd was fined £187,500.  Robert Wilson was struck by a metal bin falling from a forklift truck In November 2010.  Mr Wilson suffered fatal head injuries.

The second prosecution in England is due to be heard this month.  Lion Steel Equipment Ltd has been charged following the death of Steven Berry in May 2008.  Mr Berry fell through a fragile, plastic roof at the company headquarters and died as a result of the injuries from the fall.  Three of the company directors have also been charged with gross negligence manslaughter.

The sentence for corporate manslaughter is an unlimited fine. Some companies are unlikely to be able to easily find the money and continue trading.

The associated costs of the trial can be thousands of pounds.   As company directors and officers are directly involved in these cases, Directors &Officers Insurance will, at least, cover the associated legal costs.  If you would like to know more, please give me a call on 01244 329149.

Employers’ Liability Insurance

Employers’ Liability Insurance (ELI) is compulsory.  It is a legal requirement under The Employers’ Liability (Compulsory Insurance) Act 1969.  This insurance enables you to meet the costs and compensation an employee may seek if injured or ill due because of the work they carried out.  (Injuries due to motor accidents are covered separately by your motor insurance).

Employers are responsible for the health and safety of people who work for them.  Limited companies require ELI unless only one person or close family members are employed.  The minimum cover by law is £5 million, although £10 million is often the norm these days. You must seriously consider your risks and take out appropriate cover.

It is the Health and Safety Executive (HSE) that enforces this law and can fine companies £2,500 a day for not having valid insurance.  Failure to display the certificate of insurance can lead to fines of £1,000 (the certificate can be displayed electronically).

Accidents happen as HSE bulletins constantly remind us.  Sometimes the fines imposed by the HSE seem quite low but the levels of compensation the individual received are not revealed.  A painter who fell through scaffolding and suffered permanent brain damage was awarded a lump sum of £2.4million and on going payments of £105,000 a year for life.  Similarly a manager whose injuries following an accident left him with serious disabilities received a lump sum of £5.1million.  The legal costs are additional to these sums and can also be considerable.  The NHS can also reclaim the cost of treating injured patients to all cases where personal injury compensation is paid.  The maximum charge in respect of an injury is £45,153.

These are all big numbers so it is important you are covered.  It’s easy to see how a company could become bankrupted if uninsured.  Get in touch and I’ll talk you through your company’s risks and arrange the right insurance policy for you.